Welcome
Start: 1.30pm CET
MTU Aero Engines AG – Investor & Analyst Day 2020 Agenda
MTU´s Market Environment | COVID-19 1 Reiner Winkler | Chief Executive Officer (CEO)
Product Portfolio | Opportunities 2 Michael Schreyögg | Chief Program Officer (CPO)
Technology Roadmap | Cost Leadership 3 Lars Wagner | Chief Operating Officer (COO)
Financials | Outlook 2021 4 Peter Kameritsch | Chief Financial Officer (CFO)
Executive Summary 5 Reiner Winkler | Chief Executive Officer (CEO) Q&A Session MTU´s Market Environment | COVID-19
Reiner Winkler | Chief Executive Officer (CEO) An entire industry is on the test bench. Flights matter more to our business than headline traffic figures
Passenger traffic and capacity Passenger aircraft flight cycles YTD, Jan – Sep YTD, up to CW 44
Global International Domestic Total Single-aisle Twin-aisle
-38% -51% -48% -47% -56% -53% -65% -66% -72%
RPK ASK
• Capacity (ASK) is not performing as bad as traffic (RPK) • Flights or cycles are important to MTU's business • Domestic markets have been a focus for many airlines as • Flight cycles from passenger aircraft about 50% below 2019 levels the global pandemic continues to batter international travel
Source: IATA, FlightRadar24
November 19, 2020 5 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Global passenger flights have plateaued since August, Asia, led by China, recovers faster
∆ Worldwide flight cycles year-on-year by week
Flight cycles Passenger Cargo YTD in regions 40%
20% Cargo World -48% +16%
0%
Asia (incl. China & -20% -42% +30% Asia-Pacific) -40% Passenger -60% Europe -60% +6% -80%
-100% 1 5 9 13 17 21 25 29 33 37 41 45 49 CW North America -43% +14%
*Cargo: Traffic from purpose-built cargo aircraft, excluding belly freight and passenger models Source: FlightRadar24, MTU
November 19, 2020 6 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Domestic passenger flights in China have now recovered – so have V2500 and GTF there
∆ Flights year-on-year by week
Market development
150% • China Southern Airlines became first of “Big 3” to return to operating profit in 100% Chinese National last quarter with ~40% revenue Holiday Week decline; other carriers narrowed losses. • China’s October 2020 Purchasing 50% Cargo Manager Index (PMI) reaches highest level in ten years (51.4), indicating 0% strong pace of Chinese economic Passenger recovery. Values >50 indicate economic expansion. -50% • Infection cases edging up on very low level –recent reports of 30-50 new -100% cases on most days. Only 4 new 1 5 9 13 17 21 25 29 33 37 41 45 49 CW deaths in last 50 days per WHO data.
*Cargo: Traffic from purpose-built cargo aircraft, excluding belly freight and passenger models Source: FlightRadar24, MTU
November 19, 2020 7 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Latest MTU engine models are recovering the fastest
Development of flights with PW1100G-JM Development of flights with GEnx-1B/-2B
16,740 18,000 9,000 8,112 15,818 16,000 8,000
14,000 7,000
12,000 6,000 5,667 flights
flights 10,000 5,000
of of 8,000 4,000
6,000 3,000
Number Number 4,000 2,000 930 1,450
2,000 1,000
0 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 Calendar week Calendar week GEnx Passenger GEnx Cargo
Source: FR24 tracked flights year-on-year by week 2019 vs. 2020; Number of flights from 2020 Source: FR24 tracked flights year-on-year by week 2019 vs. 2020; Number of flights from 2020
November 19, 2020 8 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. MTU benefits from an above-average share of engines in freight service
Cargo flights until CW44 vs. 2019 Airliner fleet breakdown by usage MTU engines on dedicated freighters
Total Single-aisle Twin-aisle Industry MTU 30% 100% PW2000 JT8D-200
20% 20% GEnx 16% 13% 10% CF6
~22% ~14% 0% 0% Freighter Passenger
• In the absence of belly capacity, dedicated • 35,000 aircraft* in service in September 2020 • 2,200 MTU freighter engines have remained freighters saw a jump in flight activities with of which 14% is exclusively cargo service in service since 2019, mostly on Boeing 757, +16% y-o-y • 10,000 aircraft with MTU engines with a 767, 747 • Only 9% of freighters are parked compared higher share of engines in cargo service • Even modern passenger Boeing 787s were with 33% for passenger aircraft (September (22%) employed as “preighters” to carry cargo 2020) on the main deck
Source: IATA, Cirium Fleets Analyzer | *Airbus and Boeing passenger and freighter aircraft
November 19, 2020 9 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. The pandemic is going to keep interest rates and oil prices low, supporting our industry
US interest rates (fed fund rate upper bound) Oil price [in %]
3 2,5 71 2 64 1,5 41 1 0,5
0
2016 2020
2018 2019 2020F
Dec
1 Jun20161 Jun20171 Jun20181 Jun20191 Jun1
1 Dec2015 1 1 Dec2017 1 Dec2018 1 Dec2019 1
• US interest rates are being reduced, supporting the OE backlog • After OPEC+* nations restrained their production and major economies gradually • Lessors can use their credit rating to access cheap capital and acquire aircraft lifted Covid-19 restrictions, Brent crude prices stabilized at $40 – 45/barrel owned by distressed airlines through sales and lease back deals • IATA estimated in June 2020 that lower fuel prices should save airlines over $100bn in 2020, helping cushion the blow of a forecasted $400bn drop in revenues this year • The situation is helpful, slowing down retirements of mature engine fleets
Source: Bloomberg Source: US Energy Information Administration | *OPEC incl. Russia
November 19, 2020 10 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. As airlines deferred orders, airframers have adjusted rates A320 to make up majority of 2020 industry deliveries
Monthly rate 2019 Adjusted rates
# Aircraft on order A220 4 2+
2.500 A320 60 40 31.12.2019 A330 4 2 2.000 30.09.2020 A350 10 5 1.500 737 52/42 Restart 1.000 787 14 6 500 767 3 3 0 777 2015 2020 2025 2030 2035 2040 5/777X 2021 2/777X 2022 747 0.5 0.5, EoP 2022
• The order backlog has declined by 5% from 13,100 to 12,500 aircraft* in the first • Airframers rapidly adjusted rates, limiting the blow to in-service fleets, 9M of 2020. Single-aisles make up 86% of the backlog and A220/A320 make up an unprecedented reaction compared to past downcycles 60% of the single-aisle backlog. GTF makes up ~45% of Airbus single-aisles • 700 completed aircraft are in Boeing and Airbus' current inventory • 4% (or ~500 aircraft) of the order backlog was cancelled (80% 737MAX) • Forecasters see between 600 and 800 Airbus and Boeing deliveries for 2020 • 400 new orders were placed with 90% A220/A320 depending on 737MAX restart. Aircraft with MTU engines to make up ~330 units
Source: Cirium Fleets Analyzer, Airframers’ announcements | *Airbus and Boeing passenger and freighter aircraft
November 19, 2020 11 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Positive implications for MTU are derived from trends and strategies in the leasing market
Positive effects from the leasing market
NB Ownership lessor NB Ownership airline • Lessors own >50% of commercial airlines' narrow-body fleet and share will increase 52% 48% • Lessors have access to capital markets and provide a “capital lifeline” to the airline industry
• New order cancellations centered on MAX aircraft and new order deferrals help balance demand and supply
Lessor order cancellations YTD • Sale and lease back deals as well as rental deferrals support airlines in keeping existing fleets Lessor order deferrals YTD • Lessors maintain sufficient liquidity by issuing bonds
Sale and lease back deals YTD • Lessors directly and indirectly order MRO regularly through lease return shop visits and MRO after repossession 0 100 200 300 400 A/C
November 19, 2020 12 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Positive implications for MTU are derived from trends and strategies in the leasing market
Lessors support airlines to keep existing fleets Parked fleets expected to be reactivated, supporting (and lease contracts) running through rent deferrals, profitable MRO demand on older A/C, delaying 1 contract renegotiations and new order cancellations tear-downs
Lessors are PMA-unfriendly Less PMA risk, more OEM spare parts 2 (safeguard asset value)
Lessors are risk-averse and demand high lease return conditions and high build up Higher MRO volume 3 goals during shop visits
Airlines avoid MRO due to cash constraints and Lessors repossess A/C and MRO volume ordered by 4 eventually go into insolvency lessors absorbs some lost airline MRO volume
November 19, 2020 13 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. MTU expects an early recovery in single-aisle cycles
Single-aisle aircraft cycles [Millions]
50 Recovery driven by single-aisles • Return to 2019 global traffic levels expected between 2023 and 2024 but earlier for domestic travel 40 • Strong MTU presence in the narrow-body market • Despite general pessimism exacerbated by a 2nd wave in parts 30 of the world, there are some positive developments: First reports on the low-risk of COVID-19 transmission onboard Travel bubbles or corridors are being formed in parts of the world to 20 restart travel between neighboring countries (AUS-NZ, SIN-HK) From 220 vaccine possibilities, 12 are in phase 3 and 6 approved for 10 early or limited use BioNTech/Pfizer announce breakthrough in vaccine development – study suggests ~90% efficacy 0 • The fundamentals that have driven air travel growth in the past decades, 2019 2021 2023 2025 2027 2029 despite periodic shocks, remain intact
Source: MTU
November 19, 2020 14 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Industry is ready, but not yet cleared for take-off. Product Portfolio | Opportunities
Michael Schreyögg | Chief Program Officer (CPO) We benefit from a robust product portfolio. MTU's business segments affected differently by the corona crisis
Military OEM business Commercial OEM business Commercial MRO business
• 2019 revenues: €0.5bn (9%) • 2019 revenues: €1.5bn (33%) • 2019 revenues: €2.7bn (58%) • No COVID-19 impact • Impact on new engine business • Less shop visit demand and spare parts • High storage rates • Lower aircraft production rates • Acceleration of GTF work
November 19, 2020 18 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. EJ200 remains by far the most important fighter revenue contributor in the coming years
Expected EJ200 engine deliveries 2020 – 2029 driven by national and international export campaigns
Highlights • Fighter revenue share ~80%* in 2020 • German order for replacement of Tranche 1 Eurofighter signed in November • Decision about Germany’s Tornado fleet expected for 2024 • Additional fighter export campaigns (e.g. Switzerland: Promising flight test campaign) • Enhancement programs started (e.g. Digital engine control and monitoring unit NG)
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Committed Likely scenario *incl. EJ200, RB199, F414,F404,/F110, Larzac, others
November 19, 2020 19 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. MTU’s participation in the FCAS engine program secures future revenue growth
Volume of 1,000+ engines expected
Highlights • Biggest European defense program • Concept phase contracted in 2019, ongoing • Decision on funding of next technology projects in Q1 2021 • Engine and A/C demonstrator by ~2026 • First prototype expected by ~2031 • Entry into service expected by ~2040 • JV agreement with Safran expected to be signed by year end • ITP to join as program partner • FCAS technology as enabler for commercial engine platforms
Source: Airbus_Media
November 19, 2020 20 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Passenger air traffic down by 66% in 2020. A return to 2019 levels not expected before 2023/24. Nevertheless, there are many reasons why air traffic will rebound.
Situation today …. But …
Dec. 2019* Sep. 2020* 20-year market outlook*
Revenue Passenger +4.2% -64.7% GDP growth Kilometers (RPK) YTD YTD 2.5% 2 billion out of 7.8 billion Available Seat Kilometers +3.4% -56.2% people worldwide have flown Traffic growth (ASK) YTD YTD on an aircraft 4.0%
Passenger Load Factors 82.6% 66.7% Fleet growth (PLF) YTD YTD 3.2%
* Source: IATA * Source: Boeing Commercial Market Outlook 2020 – 2039
November 19, 2020 21 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. The recovery of the commercial aviation market can be divided into 3 phases
Crisis phase – year 2020 Restart phase – years 2021-23 Growth phase – years 2024+
• Traffic down 66%, slow recovery since Q2 • Air traffic begins recovery • Traffic growing above 2019 levels • High storage rates • Modern and efficient aircraft return • Growing aircraft orders • Airlines in cash preservation mode to the market faster • New aircraft platforms launched • MRO spending minimized by cycling • Rising green-time engines and used parts • Additional MRO and OEM capacity aircraft in/out of storage availability from excess fleets (retirements) required for growing demand • Postponement of new deliveries • Growing MRO demand • Rising number of aircraft deliveries
MTU’s flexibility, diversified customer base and product portfolio are its basis for recovery
November 19, 2020 22 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. The market for commercial series is adjusting immediately to the impact of pandemic
Segment Trend next 5 years Market dynamics/MTU impact
• Trends center on aircraft downsizing and capturing freight demand • MTU has limited exposure to new wide-body engine production • 787 production rate to recover to lower level partially offset by higher market share of GEnx Wide-body
• Narrow-bodies to benefit from more rapid recovery of domestic traffic (2022 back to 2019 levels) • A320 production rate to rise from 40 to 60 aircraft per month
Narrow-body
• Regional Jets to benefit from faster recovery of domestic markets as well • Good positioning of A220 as small narrow-body allowing rightsizing where demand is too low for large narrow-bodies • E2 Jets with GTF to dominate future RJ market, replacing CF34-powered CRJ and E1 jets Regional Jets
• Business Jets also affected by COVID-19 • Production rates for large Business Jets (G500/600) have decreased slightly, medium Business Jets suffer more reductions Business Jets • MTU well positioned in the large and medium Business Jet segment (Gulfstream G500/G600 and Latitude)
November 19, 2020 23 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. MTU's spare parts business shows resilience to COVID-19 impacts due to its high proportion of military, freight and narrow-body engines
Segment Trend next 5 years Market dynamics/MTU impact
• Slow recovery weakens wide-body passenger market • High retirement risk for older wide-body platforms International (e.g. PW4000-112”) especially quads (747/CF6, A380/GP7000) Passenger
• Freight traffic has led to a stabilization of the CF6-80 fleet, maintaining spare parts demand • ~50% of CF6-80C engine fleet in freighter, military or executive service Freighter • High visibility of PW2000 aftermarket thanks to its high military portion (C17~ 2/3 of total PW2000 engine fleet) and Military • Currently no replacement options available for 757 passenger aircraft (NMA shelved)
• Quicker recovery of domestic traffic narrow-body aircraft return to the market faster • V2500 key revenue driver in terms of spare parts business Domestic • V2500 limited risk to be retired due to its young age Passenger • In 2021: beginning transition from GTF retrofits to mixed work scopes
• Segment less impacted by COVID-19 than passenger travel • IGT demand to follow general economic recovery (power generation, oil and gas markets) IGT, • Business Jet demand to recover within timeframe Business Jets
November 19, 2020 24 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Further significant increases of GTF MRO within the aftermarket network are imminent
GTF engine highlights*
Highlights • Key technical improvements on >95% of the in-service PW1000G engine fleet to be implemented by year end** • Decline in regular MRO work leads to increased GTF shop 850+ In service 6.6 Flight hours visit capacities during the crisis aircraft million+ • Low pressure turbine retrofits to be nearly fully completed in 2020 • Proactive replacements of hot section parts to further improve reliability and on-wing time planned for 2021 • Slow increase of regular shop visits in 2021/22
370 Gallons of 3.5 Metric tonnes million+ fuel saved million+ of CO2 avoided Accelerating GTF upgrades improves profitability of long-term service agreements
* Source: www.pwgtf.com – GTF Fast Facts October 2020 ** Source Flight Global 30 Oct. 2020 – Crisis helped engine OEMs clear modification backlog
November 19, 2020 25 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Limited impact on MRO revenues based on a diversified product portfolio and market access Strong contract wins for our independent MRO business even in difficult times MRO revenues in 2016 – 2020 (in m US$) Independent MRO campaign wins 2016 – 2020 (in bn US$)
7.5 MTU Maintenance Zhuhai 100% MRO revenues reported
~5.0+ 4.5
3.0
2.2
2016 2017 2018 2019* Est. 2020 2016 2017 2018 2019 Est. 2020
* FY2019 reporting change in MRO revenues due to change in the contracting and invoicing process at our MTU Zhuhai facility ** CAGR w/o MTU Zhuhai
November 19, 2020 26 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. A sustainable MRO order book secures future growth and strengthens resilience to external influences MRO order book highlights*
Highlights • 80% is dominated by narrow-body engines (V2500, GTF, CFM56) • Low widebody exposure – predominantly cargo Narrow-body OEMRO 80% 54% • 54% is related to OEMRO participation engines orders with access to new engine programs • Strongly increasing GTF business • 17% is secured by cargo, state and military customers and IGT business • <10% of the order volume originates from financially weaker customers • Additional order volume from MTU Zhuhai 17% Cargo-, state-, military, <10% Critical order for V2500, CFM56 and LEAPx and IGT customers volume • High proportion of longer term contracts but flexible MRO network to harvest short term market opportunities • Strong engine portfolio in terms of product lifecycle
* Based on MRO orderbook per Sept. 2020 (w/o MTU Zhuhai)
November 19, 2020 27 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Long-term MRO strategy with clear focus on future profitable growth remains valid
Customer-focused service Next level digital Expansion of MRO network and product portfolio maintenance solutions structure with focus on best-cost
• Customers value MTU’s know- how, • Engine Fleet Management (CORTEX) • Capacity share in best cost countries reliability and high-quality standards • Enrich customer experience by combining to increase from 40% to 60% • Financial strength and willingness to invest innovative MRO services within one platform • EME Aero in operation since Dec 2019 in long-term contracts and partnerships • AI* optimization of shop visits, workscopes • MTU Maintenance Zhuhai: • High flexibility to react to market and material mgt. to reduce airline CASM** 2nd expansion – initial capacity 250 SVs trends & opportunities • Combination of on-wing data with predictive Long-term expansion concept • Supporting customers during the crisis maintenance planning under development (flexibility, cash optimization, ramp-up plan) • Simulate COVID effects on re-start scenarios • MTU Serbia – expand profitable in-house • Strong OEM alignment • Innovative and interactive B2B customer tools repair capabilities
*) AI = artificial intelligence **) CASM = cost per available seat mile
Continuous innovative development of our core competencies strengthens our competitive advantages in the MRO market
November 19, 2020 28 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. With our Technology Roadmap we are well positioned to participate in potential new aircraft platforms
A350–1000 stretch? A330neo successor
A321neo XLR NGSA H2-powered Airbus concept(s) A220 stretch?
777-9 stretch? 777-9/8/8F 787 successor
NGSA Boeing
C929
MS-21 Widebody 2020-30 2030-40 Source: MTU Narrowbody
November 19, 2020 29 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Diversified approach in product strategies and partnerships – a fundament for future performance. Technology Roadmap | Cost Leadership
Lars Wagner | Chief Operating Officer (COO) Adaption of production facilities and future engine technologies. Geared turbofan engines are setting new economical standards
First geared turbofan (GTF) engine generation Production re-Ramp-Up (GTF/ GTF Gen2/ NEFE)
̴ 16% reduction in fuel burn
̴ 75% Fewer reduction of emissions noise footprint CO2 / NOX Source: P&W
MRO cost savings 25% fewer stages, 45% fewer blades, lower operating temperature 2020 2020 2025 2030 2035 2040 Pre-Covid Actual
November 19, 2020 33 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Preparation of Re-Ramp-Up
MTU is using the time generated by the COVID crisis to prepare for the ensuing re-Ramp-Up
Performance Leadership Supply Chain
Operational Adaptive Excellence Value Stream Sourcing Product Design Production Management Strategy Capacity Organization Producibility and Processes
Global Digitalization Unit Cost Quality Footprint Supplier and Auto- Management Management Management mation Make-Or-Buy Strategy
November 19, 2020 34 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Automation in engine manufacturing
We constantly increase our level of automation
Reduction of costs Adaptivity to volatile markets Reduction of turnaround time and working capital • Increased operating times • Highly flexible lot sizes (down to 1) • Fewer workplace rotations • Higher level of automation • Streamlined production chains • Fewer interruptions • Separation of man and machine • On-demand manufacturing • Higher transparency and controlling • Optimized space utilization possibilities • Increased reliability
Preparation for re-Ramp-Up
November 19, 2020 35 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. MTU as role model for automation in aero engine manufacturing 2023 Progressive automation at MTU Automated ECM manufacturing Fir tree slots 2015 2019 2021 Fully automated Fully automated Fully automated Manufacturing of blisks Turbine blade manufacturing Bearing chambers
2022 Fully automated Rotor disks 2012 2017 2021 Semiautomated Semiautomated HSG Fully automated Flow path hardware line manufacturing RZE w. autonomous mobile robots LPT blade Flow path hardware
November 19, 2020 36 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Rotor2
Manufacturing 4.0
Fully automated rotor manufacturing
Main benefits
• High degree of automation: Chained Production System for Milling and Turning Automated Parts and Tool Set Up Closed Door Machining • Reduced cost and lead time • Advanced process monitoring -60% + -30%
November 19, 2020 37 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Electrochemical machining (ECM)
Manufacturing 4.0
Alternative to cutting – ECM removes metals through electric currents in conductive solutions Main benefits
• Reduced cost • No tooling wear • Improved surface quality • Lower tolerances • Advanced process monitoring • Parallel processing -50% +30% -20% • High degree of automation
November 19, 2020 38 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Our future approach MTU’s leading technology roadmap
Maturity Application
Evolutionary Gen2 GTF development Short- Mid- Long- range range range
Short- Mid- Long- Revolutionary engine concepts range range range
Mid- Long- Gas
Drop-in – no infrastructure change: SAF range range turbine
Short- Mid- Not drop-in – new infrastructure required: LH2 range range
Parallel hybrid electric concepts: Short- Mid- enabling technology range range
Urban Short- Batteries mobility range
Electric Urban Short- Mid- Long- propulsion Flying fuel cell mobility range range range
Today 2030 2050
November 19, 2020 40 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. New concepts
Evolutionary Revolutionary Gen2 GTF WET engine Flying Fuel Cell
At least -10% fuel burn, -10% dB At least -15% fuel burn, -80% NOx 1) -100% CO2 and NOx 1) noise 1)
1) w.r.t. to current GTF engine
41 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. New European Fighter Engine – NEFE
Military technology development
Key enabler
• Variable cycle engine technology
• World class components: LPC, HPC, LPT
• High-temp, low-weight materials
• Integrated aircraft/engine heat management
• Fully digitalized design and aftermarket processes
• Technology platform for next generation civil engines
MTU & Safran plus ITP are committed to jointly developing a new fighter engine
November 19, 2020 42 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. MTU operations and technology are prepared for future challenges. Financials
Peter Kameritsch | Chief Financial Officer (CFO) We remain attentive and continue to act with foresight. Outbreak of COVID-19 – Short-term cost measures
The emerging crisis triggered various reactions to immediately reduce cost in the short-term
€-200M €-100M
Personnel cost Expense reduction
• Short-time work or comparable programs • Cut operational expenses by 30%
• Hiring freeze • Return of leased-in assets
• Reduction of temps • Cut R&D by 25-30%
• Cancellation of all 40h contracts
• No 2020 bonus
November 19, 2020 46 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Outbreak of COVID-19 – Short-term cash flow measures
The emerging crisis triggered various reactions to immediately limit short term cash drain
€-300M
Reduce cash outflow Intensifying working capital management
• Reduction of 2020 Capex budget by 50% • Adjustment of supply chain to reduced demand
• Postponement of MTU Serbia • Negotiations on payment terms
• Suspension of dividend proposal • Stepping up receivables management
November 19, 2020 47 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Outbreak of COVID-19 – Increase accessible liquidity
Measures to secure a liquidity buffer were initiated instantly to counter growing uncertainties
Issue of €100M promissory note Increase RCF by €100M to €700M Placement of €500M euro bond
• Due 11 May 2021 • Due 10 July 2021 • Due 1 July 2025 • Two six-month extension options • Variable interest • Coupon 3.0% p.a. • Variable interest
Careful and timely reaction secured liquidity to steer through this crisis!
November 19, 2020 48 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Debt Maturity Profile – Diversified and no immediate action required
Nominal €M
600 • MTU maintains a diversified refinancing mix 500 • 2021 only €130M to be redeemed 400 (Promissory Note & Loan)
300 • €600M revolving credit facility to be
200 extended in 2023
100 • €100M revolving credit facility ConvertibleBond Euro Euro Bond increase expires May 2021 0 2020 2021 2022 2023 2024 2025 2026 2027 2028
November 19, 2020 49 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Key capital structure considerations – No principal change in MTUs targets
Targets Net debt/EBITDA will range between 0.5-1.5 Conclusion
No new equity • Solid financial health • Crisis has proven resilience
• Targets remain in place
Keep investment grade rating
Shareholder returns – reinitiate dividend payments MTU continues to be a reliable partner for the industry as well Maintain flexibility for investment in new programs as for the capital market.
November 19, 2020 50 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Outbreak of COVID-19 – Adjust capacity to mid-term market scenarios
Market scenarios for the coming years identified a gap between capacity need and demand:
Reduced demand Restructuring program initiated – to be finalized end of 2021 for new engines • Provision of €34M booked in Q3 2020 • Cash outflow expected from 2020 to 2022 • Full cost savings from 2022 onwards
Reduced number of shop visits -10 to -15 % capacity Instruments to achieve capacity reduction: in high-cost locations • Sustained reduction of temporary staff • Reduction of 40h contracts Higher level of automation • Early retirements • Voluntary agreements
Rightsizing capacity while being prepared for future developments
November 19, 2020 51 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Guidance 2021 The year 2021
Only an interruption in growth path
Commercial OEM business
• NB production rates reduced
• WB production rates lowered
• RJ deliveries to grow at slower pace
• BizJet production remains largely stable
• Spare parts demand to grow from actual levels – main programs remain V2500, CF6 and PW2000
• GTF engines start to contribute to spares revenue
November 19, 2020 53 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. The year 2021
Only an interruption in growth path
Military
• No COVID-19 impact
• EJ200 deliveries to increase in 2021
• Aftermarket & Support Volume for fighter aircraft to grow
• Funded technology for FCAS engine
November 19, 2020 54 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. The year 2021
Only an interruption in growth path
Commercial MRO
• Strong freighter demand remains driving SVs for CF6, PW2000
• Recovery in NB MRO continues
• Volume and share of GTF MRO to increase significantly within aftermarket network
• Expansion program
MTU Serbia, start construction
Expansion of Zhuhai completed
November 19, 2020 55 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. The year 2021: Turnaround from industries downfall
Strong pre-COVID Q1 2020 makes direct comparison difficult 2021 main drivers
Military Slightly up
Commercial OE Stable
Commercial Spares Slightly up
MRO up in 20 percent range Commercial MRO GTF contribution strongly growing
Revenue Headwind from weaker US$
November 19, 2020 56 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. We are ready for 2021. Executive Summary
Reiner Winkler | Chief Executive Officer (CEO) Executive Summary Ready for
1. Aerospace & Defence sector hit hard by COVID-19 but not all market segments were impacted to the same extent market 2. MTU reacted sober and reflected on emerging crisis 3. Business mix provides islands of stability until recovery sustainable recovery kicks in 4. Orderbook has rarely seen cancellations in OEM business and we achieved a considerable volume in new MRO contracts 5. We continue to invest in our future with industry leading manufacturing technology and next generation technologies 6. We have used the COVID crisis to further accelerate our innovation & digitalization efforts 7. Rightsizing capacity while securing financial health sets ground for future success 8. Potential M&A opportunities will be evaluated but the focus remains on organic growth
November 19, 2020 59 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Questions & Answers
Reiner Winkler Michael Schreyögg Lars Wagner Peter Kameritsch Chief Executive Officer (CEO) Chief Program Officer (CPO) Chief Operating Officer (COO) Chief Financial Officer (CFO)
Investor & Analyst Day 2020 Cautionary Note Regarding Forward-Looking Statements
Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “forecast,” “believe,” “estimate,” “predict,” “potential,” or “continue” and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) competition from other companies in MTU’s industry and MTU’s ability to retain or increase its market share, (ii) MTU’s reliance on certain customers for its sales, (iii) risks related to MTU’s participation in consortia and risk and revenue sharing agreements for new aero engine programs, (iv) the impact of non-compete provisions included in certain of MTU’s contracts, (v) the impact of a decline in German or other European defense budgets or changes in funding priorities for military aircraft, (vi) risks associated with government funding, (vii) the impact of significant disruptions in MTU’s supply from key vendors, (viii) the continued success of MTU’s research and development initiatives, (ix) currency exchange rate fluctuations, (x) changes in tax legislation, (xi) the impact of any product liability claims, (xii) MTU’s ability to comply with regulations affecting its business and its ability to respond to changes in the regulatory environment, (xiii) the cyclicality of the airline industry and the current financial difficulties of commercial airlines, (xiv) our substantial leverage and (xv) general local and global economic conditions. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward-looking statement. Any securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold without registration thereunder or pursuant to an available exemption therefrom. Any public offering of securities of MTU Aero Engines to be made in the United States would have to be made by means of a prospectus that would be obtainable from MTU Aero Engines and would contain detailed information about the issuer of the securities and its management, as well as financial statements. Neither this document nor the information contained herein constitutes an offer to sell or the solicitation of an offer to buy any securities. These materials do not constitute an offer of securities for sale in the United States; the securities may not be offered or sold in the United States absent registration or an exemption from registration. No money, securities or other consideration is being solicited, and, if sent in response to the information contained herein, will not be accepted.
November 19, 2020 61 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies. Proprietary Notice
This document contains proprietary information of the MTU Aero Engines AG group companies. The document and its contents shall not be copied or disclosed to any third party or used for any purpose other than that for which it is provided, without the prior written agreement of MTU Aero Engines AG.
November 19, 2020 62 © MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies.